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59 Cards in this Set
- Front
- Back
definition of cartel
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agreement among firms to restrict output to achieve monopoly power
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What is the Prisoner's Dilemma?
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A game in which payoffs are such that the choice set that maximizes total welfare fails to maximize personal/individual welfare
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What are 3 random cartel facts?
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1. illegal in US
2. firms split monopoly profit (if rules obeyed) 3. product type doesn't matter |
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what is mutual interdependence?
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The actions of one firm DO affect the actions of other firms
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What is derived demand?
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the demand for inputs that exists because of the demand for outputs they produce.
(increase demand for big mac's, increase in demand for products to make big macs) |
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What is the income effect?
(what do W and L do?) |
As the wage rate increases, labor decreases
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What is a monoposny?
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a firm is the only employer of workers (they are "buying" employment)
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What is exploitation of labor?
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When MRPl (marginal revenue product of labor) is greater than the wage rate
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What is a union?
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a cartel of workers
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What does a union work to prevent? What is a union's goal?
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A union works to prevent exploitation of labor. Their goal is to maximize wage AND max. employment... they want to keep W and L as high as possible
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What is a strike?
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A collective refusal to work under the current conditions.
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What is the Free Rider Problem?
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you can't prevent someone from consuming without paying
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What is a subsity?
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The income transfer to a producer
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What are three characteristics of a oligopoly?
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1. few mutually interdependent firms
2. (few firms b/c) high barriers to entry 3. imperfect information |
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What is an implication to the oligopoly's high barrier to entry?
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MIGHT ger long rung economic profit to be greater than 0
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What is an implication to imperfect information?
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stragetic cheating is possible (can form aggreement)
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What are incentives to form a cartel?
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several firms get together and act as a monopoly. They all split some profit, which is better than no profit.
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What are three factors that facilitate cartel enforcement? (ways to make it easy to catch a cheater)
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1. homogeneous products (cheating on graph = change in price)
2. smaller number of sellers, easier to catch cheater 3. many small buyers |
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What are three effects of hiring a worker?
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1. marginal product of labor (MPl) >0 so Q increases
2. total revenue (TR) increases 3. total cost rises |
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What are three factors that increase demand of labor?
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1. increase demand output
2. increase price of substitute inputs 3. increase marginal productivity of workers |
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What are two factors that decrease price elasticity for labor?
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1. decrease Ep for output
2. decrease # of substitute inputs |
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What are the three economic systems?
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1. Pure/Laissez faire Capitolism
2. Socialism 3. Communism |
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demand L =
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MRPl
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What does MFC = in perfect competition?
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W
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what does MFC = in a monopoly?
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change TVC
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What does MRPl = at L*?
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MFC
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TVC =
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W*L
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What are public goods??
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one person's consumption doesn't reduce ability of others to consume it
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What are black markets? What are they associated with?
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a market in which goods are bought and sold illegally -- they are associated with price controls
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What is the substitution effect?
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When the rage rate increases, individuals recognize that the opportunity cost of leisure has risen, so bob chooses to replace working for leisure and so they work more.
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What is antitrust?
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the department of the government that regulates monopolies
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What is game theory?
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the analysis of economic strategies in order to predict how firms will behave
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What action could you take to increase demand output?
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advertise union made products
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What action could you take to increase price of substitute inputs?
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lobby for minimum wage increases (increases D of MY labor -- making surplus of labor)
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What action could you take to increase the marginal productivity of workers?
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an apprenticeship program
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What action could you take to decrease price elasticity for output?
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lobby for import restrictions
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What action could you take to decrease the number of substitute inputs?
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lobby for tougher immigration laws (imm. will work for a min. wage, employers will bring them in in a strike)
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In a cartel, how can total producer welfare occur?
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by maximizing profit! (obey obey) -- add box numbers together and whichever one has the most profit, thats it
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in a cartel, how can individual welfare occur?
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maximize profits by cheating (for own self interest)
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In a cartel, how can consumer welfare by maximized?
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when everyone in the cartel cheats
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What are externalities?
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benefits or costs of an individual's actions that the individual doesn't recieve or pay
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What is a positive externality?
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when private benefit is less than social benefit (flies and neighbors)
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What is a negative externality?
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when private cost is less than social cost (negative cost to people beyond the firm)
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What are the three economic questions?
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What?
How? For whom? |
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What is the definition of economic systems?
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part of the social system that determines the answers to the three econ. questions.
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What 4 factors are associated with pure/ laissez faire capitolism?
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1. private people given all resources
2. role of gov. limited to two things: a. define/enforce property rights b. provide national defense 3. free enterprise 4. competitive markets |
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What occurs in socialism?
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most non-human resources are owned by the state (a central planner)
- official collects all resources to use as they see fit -gov. takes $$$ from people's incomes |
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What is an effect of socialism?
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people don't work as hard and they leave the country.
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What occurs in comminism?
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nearly all resources are publically owned.
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What is commonpool?
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where everyone takes what they want
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What is the commonpool problem?
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the arrangement where property rights are nonexistant or poorly defined
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What is the role of the government in the US?
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mixed capitalism!
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What two things does the gov. do in mixed capitalism?
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1. define and enforce property rights
2. they correct market failure |
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What is market failure?
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a situation where socially optimal amount of good or service is NOT produced
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What are the two types of market failure?
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1. public goods
2. free rider problem |
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What is the definition of marginal revenue product of labor?
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it is the additional revenue associated with a one unit increase in L (in opposed to Q) -- how much $$ you make from hiring a worker
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What is the definition for marginal factor cost?
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it is the additional cost associated with a one unit increase in L -- how much $$ it costs to hire a worker
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What action could the government take for a positive externality?
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the gov. could subsidize to a producer so its output goes up
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What action could the government take for a negative externality?
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the gov. taxes. -- that moves money away from the producers so their output goes down
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